13 Quotes That Will Transform Your Trading » Learn To Trade The Market

We all need a little trading inspiration from time to time, what better way to get that than to ponder on quotes from some of the greatest traders of all time?

I have read many trading books and biographies of famous traders that have helped me tremendously over the years. Some of their quotes have stuck with me and are essentially “mantras” that I repeat to myself daily as I look at the charts.

You will see a small paragraph that precedes each quote which explains what I personally take from that quote and what it means to me and how I apply it to my trading strategy.

Here are 13 of my all-time favorite trading quotes that I believe, if followed, WILL help transform your trading career:

1. Ed Seykota on trading with fundamentals (news trading):

Ed Seykota is one of the featured traders in Jack Schwager’s first Market Wizards books (excellent reading btw). Whilst he has many profound quotes and insights in the interview within the book, the following quote always stood out to me because I feel the exact same way about fundamental analysis.

If you read my article on why I don’t trade the news, you can learn more about why I feel this way. But, the basic idea is that news / fundamentals are already reflected via the price action on the charts, because the price action is literally the footprint of money. Markets tend to move based on expectations of future events, in this way, the actual news has already been processed and acted upon by the big traders when it is released to the public. So, it’s often futile to spend time researching economic reports and how they may or may not affect a particular market. In fact, doing so will often hurt your trading performance since the market may well do the opposite of what the news release implies. This is why I stick to pure price action trading; reading the charts and interpreting the footprint of money on them.

“Fundamentals that you read about are typically useless as the market has already discounted the price, and I call them “funny-mentals”. I am primarily a trend trader with touches of hunches based on about twenty years of experience. In order of importance to me are: (1) the long-term trend, (2) the current chart pattern, and (3) picking a good spot to buy or sell. Those are the three primary components of my trading. Way down in a very distant fourth place are my fundamental ideas and, quite likely, on balance, they have cost me money.” – Ed Seykota

2. Richard Dennis on counter-trend trading:

Richard Dennis was one of the founders of the Turtle Trader’s experiment and has made hundreds of millions of dollars trading. How did he do this? Largely by trend-following, which was what the Turtle Trader experiment was all about. His quote here is more insightful than it may seem due to its brevity. Trading against the trend is often tempting but rarely fruitful. Even for very experienced traders, fighting a strong trend is not something they do because they know it often ends in a loss. This is a core piece of my trading approach as well. As a rule of thumb, I am always looking to trade with the trend before anything else.

“I’ve certainly done it – that is, made counter-trend initiations. However, as a rule of thumb, I don’t think you should do it.” – Richard Dennis

3. Stanley Druckenmiller on risk / reward:

Stanley Druckenmiller worked with George Soros when he famously “broke the Bank of England” by shorting the British pound in 1992 and reportedly raking in more than $1 billion in profits from that one trade. Hence, what he’s saying in the quote below is directly applicable to that huge win and to how I trade as well. The most important thing is making sure your winners are on average, much, much bigger than your losers. This is why I preach a risk reward ratio of at least 1:2 or higher.

“I’ve learned many things from him [George Soros], but perhaps the most significant is that it’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.” – Stanley Druckenmiller

4. Jim Rogers on patience and sniper-trading:

If you have read any of my articles you probably know that I am a huge proponent of taking a patient, low-frequency, sniper-like approach to trading. As the great commodities speculator Jim Rogers said below, you want to wait until there is essentially “money lying in the corner” and then all you have to do is go take it. What he means is, what for the obvious trades that have confluence behind them. Also, be patient and don’t feel like you have to “make back” money if you just lost, this is how traders quickly spiral out of control!

“I just wait until there is money lying in the corner, and all I have to do is go over there and pick it up. I do nothing in the meantime. Even people who lose money in the market say, “I just lost my money, now I have to do something to make it back.” No, you don’t. You should sit there until you find something.” – Jim Rogers

5. Jesse Livermore on being out of the market:

As any great trader knows, being out of the market or “flat the market” IS a position and is usually the right one! Wait for the right trade setup at the right time / spot on the chart, don’t just always be in the market just because you can. Trading can either be a highly-skilled, discipline-fueled way to make money or it can be your own personal slot machine where you continuously hemorrhage your money, it’s up to you to decide which way you will play it.

“Play the market only when all factors are in your favor. No person can play the market all the time and win. There are times when you should be completely out of the market, for emotional as well as economic reasons.” – Jesse Livermore

6. Warren Buffet on self-discipline and risk management:

I always think about the following quote from the great Warren Buffet (who needs no introduction I hope). What he is saying is so succinct yet very powerful. One of the difficult things with trading is that you can follow a trading plan to the T for years and do very well through that discipline and self-control, but it only takes ONE trade where you’re over-leveraged and the market goes against you to wipe out a huge portion of all the money you’ve made. Not only are you wiping out that money quickly but all the things you did to make it; all the discipline and good habits can be erased in an instant. Hence, be sure you are always on your risk management game and always staying disciplined in the market.

“It takes 20 years to build a reputation and 5 minutes to ruin it. If you think about that, you’ll do things differently.” – Warren Buffett

7. Paul Tudor Jones on protecting your capital:

Capital preservation is probably the most important part of trading and the most overlooked. It’s quite sad because if more traders understood how to preserve their capital or just how important it is, there would be more successful traders.

“I’m always thinking about losing money as opposed to making money. Don’t focus on making money, focus on protecting what you have” – Paul Tudor Jones

8. George Soros on being a “contrarian” in the market:

I consider myself a “contrarian” trader. What that means is that I am always looking for the unexpected and looking at the market through the eyes of a pro, not an amateur. The amateur bets on the “obvious” looking breakout, whereas the professional knows that false breakouts are very common and they may elect to wait for it to materialize rather than jumping in with the rest of the “herd”. George Soros is the epitome of a contrarian trader as his Bank of England trade so famously proved. If you want to see the actual chart of the time he shorted, you can see it here, notice there was actually a fakey pattern the day before the market dropped and Soros made his $1 billion.

“Markets are constantly in a state of uncertainty and flux and money is made by discounting the obvious and betting on the unexpected.” – George Soros

9. Marty Schwartz on learning to take losses properly:

Losing money in the market properly IS a skill. If you don’t learn to lose properly you will definitely not end up profitable at year’s end. You are going to have losses, that is a fact. How you deal with them and how big you allow those losses to be, are the variables that you control. So, control them or else they WILL control you.

“Learn to take losses. The most important thing in making money is not letting your losses get out of hand.” – Marty Schwartz

10. Bruce Kovner on stop loss placement and position sizing:

The two most important components to risk management are stop loss placement and position sizing. They are connected as Bruce Kovner points out in the quote below. Your position size on a trade is determined by the stop loss because you must adjust your position size to maintain your desired dollar risk per trade so that you don’t exceed it, and the size of the position will vary depending on how wide your stop is. If your stop loss is wider you need to decrease the position size to maintain risk, if it’s narrower than you can increase position size. Generally speaking however, and especially for newer traders, wider stop losses are better.

“Whenever I enter a position, I have a predetermined stop. That is the only way I can sleep. I know where I’m getting out before I get in. The position size on a trade is determined by the stop, and the stop is determined on a technical basis.” – Bruce Kovner

11. Paul Tudor Jones on not getting over-confident after winners:

Do you want to know the quickest way to lose money in the market and blow out your account? Get cocky, get arrogant / overconfident, whatever you want to call it, when you start getting like this you are all but sealing your fate as a losing trader. You do not control the market, you only control your reactions to it and actions within it. Just because you hit a few winners in a row doesn’t mean you’re now a super-trading-genius who will never lose. Remember: there is a random distribution of wins and losses for any given trading edge in the market and if you don’t know what that means then please click the link above and read the article.

“Don’t be a hero. Don’t have an ego. Always question yourself and your ability. Don’t ever feel that you are very good. The second you do, you are dead. My biggest hits have always come after I have had a great period and I started to think that I knew something.” – Paul Tudor Jones

12. Marty Schwartz on not over-trading:

Ah, over-trading, the death of most trader’s accounts. How can you avoid this you ask? Simple, schedule breaks from trading, write it into your trading plan and make it part of your trading routine. Don’t worry about missing out! FOMO is the most common mistake traders make. The market isn’t going anywhere and that means you have a never-ending opportunity stream from which you can ‘go fishing’ whenever you choose. This is part of the reasons trading is so awesome; you can make money and then take time off and then come back the market is still there with opportunities! The point is, you NEED breaks to reset and calibrate and to avoid getting over-confident and over-trading.

“I have learned through the years that after a good run of profits in the markets, it’s very important to take a few days off as a reward. The natural tendency is to keep pushing until the streak ends. But experience has taught me that a rest in the middle of the streak can often extend it.”– Marty Schwartz

13. Jesse Livermore on the repetitive nature of the market:

In the following quote, Jesse Livermore is talking about the semi-predictable nature of the markets and how the same things tend to happen again and again over time. This is because human being’s responses and behaviors are very predictable and similar, generally speaking. Price action analysis allows us to spot repetitive patterns that clue us in on impending price movements in the market. These patterns have worked for centuries because of the fact that human behavior is repetitive and predictable. Hence, when you learn to read the price action on the charts you are learning to read the behavior of all the people participating in that market and what their collective behavior may lead to next.

“I learned early that there is nothing new in Wall Street. There can’t be because speculation is as old as the hills. Whatever happens in the stock market today has happened before and will happen again. I’ve never forgotten that.” – Jesse Livermore

Conclusion:

The inevitable conclusion to this article is that we all need a little help sometimes and we all need to learn from those who know more than us. I have learned so much from the traders quoted in today’s lesson as well as many others, simply by reading about them. You can learn from them too and I suggest you do just that. The lessons I have learned from the trading greats have heavily influenced my personal trading approach and the strategies and lessons I teach in my professional trading courses. Learn as much as possible from those who have come before you and you will avoid a lot of costly errors that can derail your trading. Let your ego go and remember that trading is a game of patience, discipline and never-ending education.